April 23, 2009

I always wondered about dimwits who go on holiday, then
spend the entire trip a fingerbreadth from the hotel television. But there I
was--fingers, breath and all--in my beachside room screaming at Nancy Pelosi
and Henry Paulson on “All Bailout, All the Time” TV as they ran around like Chicken
Little telling Americans that money no longer grows on trees and that the great
oaks we call banks would perish if they didn’t get some greenbacks fast. The
green was then plucked from our modest front yard flora and rushed to the banks,
but the banks then stubbornly refused to shelter us with their pythonic branches.

Even though I was an anti-bailout girl from day one, I
figured it would have been better to give the money to Americans indirectly rather
than rely on the Troubled Asset Relief Program (TARP) and other questionable congressional
schemes. Of the $4 trillion that has been committed to the bailout (according
to figures released by Congress’ oversight panel, although Bloomberg and others
say it is upwards of $12 trillion), the 250 million Americans age 18 and over could
have received $16,000 each. It would work like this. A person with a mortgage
would receive a principal reduction of $16,000 on his bank loan. A person without
a mortgage, but with credit card debt, would receive up to a $16,000 credit on
this debt and any unused funds would be placed in a mutual fund for a period of
no less than ten years. A person without mortgage or credit card debt would be
required to take the $16,000 mutual fund option. The banks would receive the money,
thus become more liquid so they could lend in the future. The stock market
would get a boost, and the average person would experience greater optimism about
the economy and his own financial situation. This did not happen, and it is fruitless
to cry over bare bushes and toppled trees, or the verdant landscape that could
have been.

Anger, however, can often move mountains, even barren ones. The
average person is incensed over pyramid-king Bernie Madoff, CEO bonuses, lavish
executive junkets and the diamond-studded safety nets gifted big business. This
anger has prompted a lot of legal scrutiny and a few arrests, a lot of
indignant political speeches and a few attempts to patch bad law, and a lot of
negative press about corporate greed and a few reimbursements of bonus funds.

But public outrage is deficient in the realm I call banking’s
black hole of incompetence, a bureaucratic void which seems to suck
intelligence, ability and reason from bank employees. As a Realtor, I have come
face to face with this stymieing scenario in bank short sale departments. A short
sale is when a lender agrees to let a property sell for less than is owed on
the loan and forgives the difference in order to avoid a costly and
time-consuming foreclosure. This is not real forgiveness or a favor; it is done
to increase the bank’s bottom line. A short sale tends to net the bank more
than a foreclosure does.

A short sale works like this. A property is listed with a
Realtor, and then offers are submitted to the bank along with documentation
showing the owner of the property has a hardship. The bank reviews the
documents and appraises the property, then typically two to three months later,
makes a decision about whether they will take less than the amount due on the
note. According to the Philadelphia
Inquirer, buyers are sometimes required to wait six to 11 months for a short
sale department’s response, finding out later they have chased their tail and
have no deal at all.

Short sales have increased dramatically in the past two
years. According to the National Association of Realtors, short sales and
foreclosures account for 45 percent of the home sales nationwide.

I recently closed six short sale escrows, but grimaced each
time as banks delayed for months, ordered overvalued appraisals and mismanaged
files. Too few employees and low wages was the standard excuse, but there did not
seem to be an attempt to increase compensation or hire enough staff to handle
the workload.

On these transactions, the banks—which were supplemented with
taxpayer dollars--lost $675,000, an average of $112,500 per property, in a price
range of $500,000 to $1,100,000. The losses could primarily be attributed to
the bank’s extended delay, which typically resulted in a loss of the buyer with
the best offer. In the end, a second or even third place bidder would close the
deal. Additionally, when banks are slow to respond, properties fall into
disrepair and lose value. Brown lawns, mosquito-infested pools and leaky plumbing
systems are not uncommon.

Sometimes this taxpayer loss can be chalked up to inflated
bank appraisals and an irrational rejection of a market-price offer. Other
times, it can be attributed to foolish self-imposed time-limits, such as when a
bank negotiator, who has taken three months to look at a pile of offers, tells
the seller’s accountant he has only one hour to provide an updated profit and
loss statement or the file will be closed, thus requiring the entire process to
be started from scratch.

According to the National Association of Realtors,
approximately five million homes were sold last year. If we estimate that one
million were short sales, it is reasonable to assume that there may be an
annual taxpayer loss of as much as $100 billion due to this sort of banking incompetence.

A seventh short sale transaction in December did not close. As
listing agent, I brought the bank an offer of $185,000, but the bank refused
it, saying the townhouse was worth $205,000. A month later, the highest offer I
could get was $135,000, which they rejected saying the property was worth
$155,000, despite the fact that unsold listings in the same complex were priced
in the $120,000’s. The townhouse went into foreclosure and is now on the market
for $115,000. In addition, the homeowner association (HOA) has been fining the
property at $100 per day for months: the final sum owed to the HOA will be upwards
of $18,000. Since the bank refused the initial $185,000, the loss to taxpayers
on this transaction will be at least $88,000.

The oak, which is the national tree of the US, is a symbol
of Zeus, the Thunder God and strength; but lately our banks have proved
themselves unworthy of this distinction. They have become welfare bandits when
they should be pillars of stability for the community. They have accepted taxpayer
dollars without weeding out incompetence and senseless waste. They are rooted at
the center of the senseless bailout efforts, and we should be angry about it
all.